Vinh, an investor from Ho Chi Minh City, said he had borrowed VND1 billion ($43,100) in 2016 to purchase a one-bedroom apartment for VND33 million ($1,422) per square meter at the Cocobay condotel complex in central Da Nang City.

But the apartment had just been furnished and not yet leased to guests by the Empire Group, the project’s developer, so Vinh has had to come up with money for periodic debt repayments on his own for the past year, he said.

Things will get even more difficult when Empire Group stops paying buyers of its condotels the 12 percent annuity it had guaranteed on the units from next year onwards, Vinh said. The Empire Group cited financial difficulties when it informed its 1,700 buyers earlier this week that it was breaking its guarantee of the annuity payments.

Similarly, Hanoi resident Son said he had paid VND9 billion ($388,000) for a semi-detached house in 2016. But payments from Empire Group have been delayed over the last few months. This October, he had only just received a VND420 million ($18,100) payment that he was owed as of June.

"I owe the bank about 55 percent of the total worth of the house, which is approximately over VND4 billion ($172,400). Excluding principal, interest payments alone come to VND660 million ($28,400) per year," he said.

Annual returns from the developer are paid directly to banks as periodic loan repayments under standard three-way agreements signed when an investor purchases a property. Because Empire Group has decided to default, banks are asking investors for these sums.

"I thought I would receive a stable stream of income from the property, but now I am deep in debt, while I haven’t figured out how to make money from it," said Long, an investor from Hanoi who had bought a Cocobay shop house for VND15 billion ($646,500) in March 2017.

Inadequate solutions

Empire Group offered buyers several outs upon announcing that it will stop with the promised annuities payments. This includes: the buyer foregoing their annual returns clause, in order to be allowed to lease the flats out themselves; swapping Cocobay condotels for flats in projects under construction; or selling off units back to the developer.

"We don’t agree with how Empire Group wants us to deal with the properties, it all seems detrimental to the buyer. It is difficult for us to choose an option when we do not have the tools to calculate the specific cash flow that each option will bring," said Thanh, a buyer from HCMC.

Thanh also raised concerns that condotels let out by the developer are being managed poorly and do not have sufficient services or utilities that could attract tourists. She spent one vacation at her own condotel, and was frustrated that it did not offer the facilities that a high-class resort would.

Nguyen Duc Thanh, Chairman of Empire Group, said investors can sell back flats and get a full refund. This way, there will be "no loss and no damage," he said.

However, this solution does not account for the time spent and additional fees, such as financing, management and operational costs of getting involved in the project, said buyer Thanh.

According to Le Hoang Chau, chairman of the Ho Chi Minh City Real Estate Association (HoREA), a guaranteed return is one of the biggest factors that attract condotel buyers. But this guarantee is essentially a sophisticated marketing trick because there is no solid legal basis to protect consumers when such a clause is breached.

Because it is also economically difficult to meet such high guarantees, both buyers and sellers lose in the end. Cocobay will not be an isolated incident, and other condotel projects will also run into financial difficulties if the quality of the products are unable to meet income commitments made by developers, Chau warned.

Cocobay is a 51-hectare hospitality and entertainment complex in Ngu Hanh Son District, Da Nang City. Construction began in 2016 at a budgeted cost of around $5 billion. Empire Group had planned to build 10,000 three- to five-star rooms, but has so far built just 3,000.

It has been reporting losses since 2017, accumulating VND134 billion ($5.78 million) as of last year. It has debt obligations of VND10.17 trillion ($438.3 million).